Milestones are an important part of making progress. They break up a task into more manageable psychological and material chunks. They’re motivating; you can celebrate when they’re reached even if the bigger victory isn’t yet won. Yes, milestones are generally a good thing, a marker on the road to where you’re going. There are conversely some waypoints that you never wish to pass.
Personal finance is, naturally, littered with numbers. Savings rates, FI numbers, net wealth etc. These targets will be variable according to the individual, though there is one pecuniary milestone that consistently crops up – one hundred thousand.
Charlie Munger supposedly quipped that “the first $100,000 is a bitch” back in the 1990’s. Attaining an invested wealth of $100,000 has since become a bit of a personal finance cliché. The idea is to do whatever it takes to get there ASAP, as once you’ve accrued that much things are a bit easier thereafter. There are blog posts aplenty describing how the author reached $100k; how they scrimped, saved, begged and borrowed to reach this milestone. They’re all of a similar vein – you simply follow all the usual personal finance/financial independence tropes as found in any listicle. Spend less, earn more and grow your invested assets consistently at 10%/year. Job done.
In equal abundance are articles describing the reasons why this “magical” number is of particular importance. The most frequently quoted reason is just window dressing for compound interest. One article asserts that $100k is special because:
“…it takes 7 – 8 years to save the first $100k no matter what annual interest rate your savings grows at. This is because the amount you save matters far more than your investment returns when you’re just starting out.”
Although I agree with the second half of their statement, the initial part is only true because they chose $10,000 as the annual investment amount. Perhaps deliberately, perhaps arbitrarily. If they had chosen $5,000, then the spread of duration would be 12 – 19yrs. For $25,000 annual investment then it’d be <4yrs regardless of interest rate.
Confuting the mystical properties of £100k
One argument is that by reaching this milestone you’ve established good financial habits, which are likely to continue. Therefore you’ll be financially successfully in the long run. Why this applies specifically to £100,000, but not £50,000 or £75,000, I’m not sure.
I do quite like Captain Vimes’ ‘boots’ theory of socioeconomic unfairness as applied to the £100k mark. Once you reach that level of wealth, you’re able to afford better quality products (e.g. higher quality boots) that, in the long run, save you money. Hence wealth begets wealth.
The ‘returns are more significant’ rationale for £100k being special is interesting. On the one hand, having £5,000 interest (5% on your £100k) is intuitively much more attractive than having £50 (5% on your £1,000). On the other, at the end of the day it’s the same 5% interest. Generating £10,000 in interest sounds even better though; why isn’t £200,000 the magic number?
Is £100k exalted because it’s a nice, round number that balances achievability with the sense of being ‘a lot of money’? About half the people in the UK have a net worth of >£100k although, given the UK’s penchant for property, I would hazard that those with £100k invested are far fewer in number. So perhaps that makes it a lot of money. Perhaps there’s a reason people dream of being millionaires instead though. If you take the average UK take home pay (~£2,000/month) and the average UK monthly savings rate (8.2%), it would take nearly 25 years to reach the £100k milestone at 5% interest. I guess that makes it broadly achievable too?
I totally agree that having milestones, financial or otherwise, is an enjoyable and productive framework for your personal progress. I’m just not sold at all on the $100k fascination; it’s a fairly arbitrary number. Manipulatable as you see fit:
Munger is American, so actually here in Blighty you would only need £72,000 to have $100,000. Sorted.
But he made his remarks in the 1990’s…so you actually need closer to $200,000 in today’s money. Ah.
Although if we work in base 13 you’d only have to accrue £36,694 for the base 10 equivalent. Sweet.
Will I enjoy the day that I have £100k of invested wealth? Of course. But no more so than £50,000 or £200,000. Munger is a man of infinitely greater fiscal understanding and experience than me. But the idea that I should work myself into the ground to obtain $100k then, and only then, ‘take my foot off the gas’ seems silly. Why not try to find a level of expenditure that allows me a quality of life that feels right, and then be consistent in my save/spend balance thereafter? I might get to £100,000 of invested wealth more slowly, but I’ll enjoy the journey a bit more.
A milestone you never hope to reach
A similar milestone approaches, a most unwelcome one. At the time of writing the UK death toll from Covid-19 is nearing 100,000 people. Akin to filling all the seats in Wembley stadium, cramming another 10,000 people onto the pitch and then all of them dying. It’s the entire population of Bath dying. 150x more deaths in a single year on home soil than British military casualties in the Iraq and Afghanistan wars combined.
200 vaccines a minute is fantastic, but there’s still an admission to a UK hospital with Covid every 30 seconds. There are not enough physical bed spaces to accommodate this tsunami of Covid positive patients. It’s led to patients being moved between hospitals all over the country, to hospitals reducing the amount of oxygen they give people because they’re simply running out. The military have had to be drafted in to help in some places. We don’t have the capacity to give everyone everything, so we have to select who gets what and who doesn’t.
In the hospital, we’re not dealing in gross statistics such as “a thousand deaths a day” or “100,000 dead from Covid-19”. We’re caring for individuals. It’s not “people aren’t getting the care they should”, it’s that person in front of you. A husband, a mother, a brother, a daughter. Your wife, your father, your sister, your son.
Staff are frustrated, helpless and overwhelmed. There’s the increasing frequency of having to make ethically difficult decisions; Sophie’s choices of a sort. There’s the horror of seeing people fighting for their life. Not just the elderly or infirm, but otherwise healthy young men and women – the average age on our intensive care unit is in the 40’s. A proportion will never leave the unit alive.
A single straw away
“I’m waiting for the headline that says: ‘Doctor takes own life because of the pandemic’. It is going to happen. If not today, it’ll be soon because they are on their knees – and they want people to know that.” From an interview on BBC News.
No wonder then that nearly half of surveyed intensive care staff met thresholds for mental health issues after the first wave of Covid-19. It’s not just “staff are suffering”. It’s your colleague telling you that she cries when she gets in the car to go home. Every day. It’s your friend acting out, being uncharacteristically aggressive and ill-tempered. Staff calling in sick because they can’t face coming to work. It’s people who are on the edge; their camel’s back one straw short of shattering.
I highly recommend reading this post written by a doctor about their Covid experiences. It makes for heart-breaking reading. Their experience is not unique; it’s all day and all night for staff up and down the country. Even with vaccines and lockdowns, these sorts of experiences for NHS staff are not going away anytime soon.
Lars Kroijer’s optimistic look at the Covid endgame belies the reality for the frontline individuals who are thoroughly spent. Their cognitive, emotional and compassionate reserve is sorely depleted. Yet soon they’ll be asked to pick up the slack again to tackle the backlog of work that Covid has merely delayed. All the while the future of the health service itself remains uncertain.
A step at a time
Never mind the first $100,000 being tough – Munger obviously wasn’t reading the Washington Post in the 1980’s, where a young lad wittily remarked that “life’s a bitch, then you die”. Set financial milestones sure, but be mindful of the arrival fallacy. Save money, but perhaps not at the cost of living a life with little quality. Aim to augment your wealth, but prioritise enriching your life.
All roads were once said to originate from the milliarium aureum, the golden milestone in Rome. Whether its investments or Covid, I’m not hanging my hat on arriving at a gilded final waypoint. I’ll settle for reaching the next marker on the road. I’m a fair way short of £100k, but I’ll get there eventually. Covid isn’t going away tomorrow, but some progress is enough for now.